Russia’s manufacturing sector remained underwater in January, but the declines were at the slowest pace in eight months, according to S&P Global’s latest Purchasing Managers’ Index (PMI) data.  (chart)

A government-mandated two percentage point increase in value-added tax (VAT) to 22% went into effect on January 1, triggering a sharp acceleration in inflationary pressures, compounding challenges for producers.

The seasonally adjusted S&P Global Russia Manufacturing PMI rose to 49.4 in January from 48.1 in December, just below the 50 no-change benchmark, signalling a marginal decline in operating conditions, says S&P Global. While still below the no-change threshold, the reading marked the mildest deterioration since the downturn began eight months ago.

Production and new orders continued to fall, but the rates of contraction eased significantly, with S&P Global noting “some reported signs of improving demand and inflows of small orders”. Export sales also fell, though only slightly, amid subdued demand in neighbouring markets.

Last year saw a marked slow down in Russian economic growth due to CBR governor Elvia Nabiullina unorthodox experiment to bring down sticky inflation by slowing the economy. It worked with inflation falling much faster than expected allowing for 500bp of rate cuts. However, she may have overdone it as the economic slowdown was also faster than expected. Nabiullina warned that Russia might go into recession this year unless more growth-boosting reforms are put in place.

Despite the moderation in output declines in January, inflationary pressures intensified sharply as producers faced higher operating expenses. S&P Global reported that January saw the steepest increase in input costs in a year, driven overwhelmingly by the government’s VAT increase.

“A historically elevated rise in input prices following VAT changes led goods producers to increase their output charges during January,” the report stated. “The rate of charge inflation was sharper than the series average and the fastest since October 2023.”

Manufacturers responded by raising prices and cutting labour costs. Employment fell at the joint-fastest pace since June 2025, mirroring data from September. Panellists cited reduced work schedules and lower production requirements as key reasons behind staffing cuts.

Stock levels also continued to fall, as firms ran down both pre-production inventories and finished goods to supplement production. Purchasing activity declined, although the rate of contraction was slower than in previous months.

Logistical challenges further complicated input procurement, with supply chain delays reported at the highest level in nearly a year, especially for imported components.

Despite the pressures, business sentiment improved marginally. Manufacturers expressed hope that new product launches could support future demand, but confidence remained below the long-term average and was among the weakest seen in three-and-a-half years.

“Although firms noted greater optimism in the year-ahead outlook, concerns regarding demand conditions persisted,” S&P Global said.